S.A. could dump gas plans if batteries, demand response deliver

South Australia may well have killed two birds with one stone with its choice of GE mobile diesel units for its temporary and long-term back-up generator plans, but it may have also given itself an option to kill the more expensive bird altogether.

RenewEconomy understands that the contract signed between US power firm APR Energy and South Australia Power Networks only extends to the short-term leasing of the mobile diesel generators.

The state government, meanwhile, has only committed to an “option” to translate this into a long-term contract using the same units in permanent locations, meaning it is not locked in.

It suggests that if demand response (DR) initiatives proposed by the Australian Energy Market Operator and the new Tesla battery storage installation prove their mettle this summer and next, and yet more DR and storage is brought to the market, then South Australia may decide that no government-owned gas generator is needed.

It certainly has that flexibility, and if the response to the expression of interest conducted by the Australian Renewable Energy Agency is any guide, there are plenty of demand response opportunities – where energy users are paid not to use electricity at certain times – ready to be exploited.

ARENA, in conjunction with AEMO and the relevant state governments, is seeking 100MW of demand response in Victoria and South Australia, and another 70MW in NSW.

But when it sought expressions of interest in May, ARENA was overwhelmed by the response, which came from 90 different organisations, and was as great as when South Australia and then Victoria pitched for battery storage proposals.

“We had a fantastic response from the market,” ARENA said in a letter to stakeholders, noting that a combined total of 693MW of demand response (excluding diesel) could be delivered by December 1 this year and a “whopping” 1,938MW (also excluding diesel) by December 1 next year.

Around one-third would be sourced from residential customers, another 30 per cent from industrial and 20 per cent from commercial. The technologies included industrial load curtailment (pumps, motors and other processing equipment), batteries, HVAC systems, distributed generation and residential appliances.

The proposals came from a mixture of energy retailers, networks, technology vendors, specialist aggregators, local councils and large energy users.

The response underlines the potential of a smarter way to deal with demand and pricing peaks than simply shovelling new fossil fuel generators into the system, and much of this could be brought to market if the Australian Energy Market Commission, the main rule maker, gets its act together.

The AEMC has been invited by the COAG energy council to join the 21st Century and produce a policy of demand management by next summer. It has been sitting on such rules for several years, arguing that demand management already exists.

That may be true, but that capacity is mostly in private contracts and all but invisible, and therefore all but useless for a market operator to deploy when demand is high, wind or solar output is low, and one of the fossil fuel generators crashes in the heat, as they are prone to do.

Reneweconomy has long argued that building diesel generator or adding new gas plants is not the smartest option for South Australia, because there are faster, cheaper and cleaner alternatives.

You would imagine that AEMO’s new boss, Audrey Zibelman, would also like to prove her point, oft-repeated, that demand-side alternatives such as storage, energy efficiency and demand management, are a lot smarter and cheaper than building new plants that are expensive to operate.

They are also quicker. And this is a crucial point given the creaking nature of Australia’s ageing fossil fuel fleet, and its inability to respond quickly to major events. That issue was one of the major, but unsung, features of the Finkel Review.

As Zibelman said way back in March, before a meeting with SA Premier Jay Weatherill:  “You don’t have to invest in generation that you are only going to use a few hours a year, because you can use the load itself as a balancing resource.

“It is that signal that says (to peaking power plants): ‘Hey there, we don’t really need you,” that’s going to help moderate prices. It’s pure economics applying to them and making demand a much more active portion of the grid.”

Still, it is not surprising that South Australia has chosen diesel to try to ensure the lights don’t go out again this summer, particularly with an election due in March. It has been mocked by its need to turn to fossil fuels, but let’s also remember that fossil fuel grids need huge back-up as well to address their inherent inflexibility.

In Western Australia, an 82MW diesel plant in Merredin, costing $95 million and paid for entirely by subsidies, built in 2012 and never switched on, stands as testimony to the folly of the fossil fuel mentality.

The load-shedding in South Australia in February was not due to renewables or a lack of capacity, but a misreading of the weather by AEMO and a decision by Engie to keep its 250MW Pelican Point gas station idle while its customers had their power switched off.

AEMO has since revised its processes – promising among other things to read updated weather bulletins – and under Zibelman (who took up her role in March) will have a new approach, and new technologies to deploy during the inevitable future heatwaves.

Apart from the demand response that could be in place, there will be the Tesla battery, able to inject fast response in the case of network faults, or fill in some of the gaps in the case of inadequate generation (read our explainer here to sort through the nonsense propagated by the naysers).

It will have 276MW of emergency diesel back-up contracted to APR by the local network operator (it will be interesting to see how that goes in the heat), and over the longer term it will have more dispatchable renewables, and even a solar thermal plant, contracted to supply the government’s electricity consumption.

AEMO’s safety-first decision to require four gas plants to run when there is more than 1200MW of wind power underlines what’s at risk if the system fails again, even if it’s not the fault of renewables.

The price rises that decision has caused, or rather the price falls that it inhibits, increases the economic argument for a solar tower with storage plant like the one proposed by SolarReserve for Port Augusta, or if anyone can produce similar technology at the same price.

There is also the 5MW virtual power plant being put in place by AGL, another version implemented by SAPN, and numerous other large-scale solar and battery storage options that could also see fruition – from the likes of Carnegie, Reach Energy, RES, Zen Energy and Lyon Group.

Other projects include a possible pumped hydro facility discussed by the new owners of the Whyalla Steel Works, and a silicon-based storage option proposed by Adelaide outfit 1414, for a wind farm in the state.

In the end, it is hard to imagine why the South Australian government would then need to intervene over the longer term. The temptation may be great, because right now they trust neither the market, nor the private players.

But, assuming they win the election, and AEMO keeps the lights on (the former depends on the latter), it will be hard to imagine why, in the cold light of day, they would possibly need it. They might even say so before the polling day.